Markets with Worst Appreciation

[Nick Gerli]

Everyone loves to talk about the markets that seeing crazy appreciation - the Boise's and Spokane's of the world - but what about the markets that are lagging the rest? 

The data below highlights 15 large markets with the worst appreciation over the last year. Data is sourced from Zillow and covers the "metro area" for each market. 

Quite an interesting array of markets on this worst performers list. Highlights:

-How about Texas? Dallas, Houston, and San Antonio dominating the bottom of the list. This comes as Texas just posted by far the highest levels of population growth of any state through mid-2020. Could oversupply be an issue?

-Chicago has been a market that has lagged the rest of the US in almost every relevant metric over the last 10 years: income growth, population growth, home price growth, etc. 

-Over half of this list is comprised of state capitals. Raleigh, Richmond, Harrisburg, Baton Rouge, Columbia, Jackson, Oklahoma City, and Des Moines. Could be coincidence...or maybe not?

-Low appreciation might not be the worst thing in the world. It could mean values in these markets are more stable through a downturn. Some of the cities are the ones that performed the best during the real estate crash from 2007-12. 

What are your thoughts? Are you invested or looking to invest in any of these markets? 

[Dan Weber]

I'm surprised to see so many cities in Texas on this list given the population growth and migration to the state from other parts of the country. I wouldn't necessarily steer clear of these cities because of the small amount of appreciation. If all of the underlying economic conditions are still strong (population growth, job growth, diversity of employment, etc...), then I would still invest in that location.

[Amy Verges]

Thanks for sharing...this is very interesting.  I'm here in Baton Rouge and one of the reasons I love the market as an investor is the stability. We're not nearly as affected by economic recessions as other markets of the same size. I also typically tell people to buy for cash flow since you can't count on immediate appreciation.  That being said, I think it's very dependent on where you buy in the city. There are areas that have had constant appreciation, but others that unfortunately have depreciated in recent years. If you know where to buy, it's not an issue, but I can see how those bad areas could have an effect on our overall numbers.

I'm curious to hear from others in some of these markets. Specifically curious about how Raleigh made this list since I've looked into that market a bit and see stories about crazy year over year appreciation.

[Doug Spence]

@Nick Gerli Great post! Very interesting statistics and I like your thought provoking questions. I invest in one of those markets (OKC), and I think its important to take into account the sub-markets within these areas. For example, many areas within OKC don't see much appreciation year over year, but the gentrifying parts have seen significant appreciation in the last year or so! My takeaway: just because a metro as a whole is experiencing below-average appreciation, doesn't mean every property in that area has below-average appreciation! 

[Chris Martin]

I had a Blink moment. So, check your data sources. I don't see the Raleigh market as one of the worst in the US, but for any dataset, you can usually munge the query to make whatever narrative you want. Source: St. Louis Fed reserve, home of some the best data... and free.

You will note that San Jose is not in the cellar dweller list, but has underperformed the other three (including Raleigh, a market I am familiar with) according to the Case Schiller datasets. 

[Andrew Rosenberg]

@Nick Gerli Issue I have with addressing your question are that it's one year of data and it's reflective of the the past. I would suggest that you look to the future. The PWC Urban Land Institute published a 144 page stat nuggets of a report for emerging trends 2021. You'll be much better off reading that report.

[Wesley Mullen]

I'm new to this, but noticed OKC was mentioned and found this information intriguing. I tend to agree with Douglas in that although the OKC metro may not be appreciating as much, the surrounding areas (esp to the west) have continued to grow with time. Even Norman has multiple new housing divisions going up which is increasing values of the older homes (and in turn rent - I was a direct victim of this as a tenant). Also, OKC is quickly growing as a hot spot for new careers as it's fairly affordable to live here. As I begin to dig further into the surrounding markets as I/we begin this REI journey, I'll have to keep this post in mind and try to come back with updates that I find out.

Side note, being from Iowa originally and having multiple friends move to the Des Moines amd surrounding areas, I wonder if this is the case as well?

Very interesting post that could prompt a lot of additional research!

[Kenton LeVay]

I find it hard to believe that the US Avg appreciation for one year is near 10%.

I believe the metros in this list are 1-6%, but I can't believe the top 85...

Some things to consider:

• - Is this just SFH? or are there Multi-family? The chart doesn't specify
• - Does "Home Value" mean sale price or Zestimate? Because those can be wildly different
• - To the point above, if this is based off sale price it would include flips which I would argue artificially increase appreciation at the metro-level (especially in the short term)

[Taylor L.]

Originally posted by @Nick Gerli:

Everyone loves to talk about the markets that seeing crazy appreciation - the Boise's and Spokane's of the world - but what about the markets that are lagging the rest? 

The data below highlights 15 large markets with the worst appreciation over the last year. Data is sourced from Zillow and covers the "metro area" for each market. 

Quite an interesting array of markets on this worst performers list. Highlights:

-How about Texas? Dallas, Houston, and San Antonio dominating the bottom of the list. This comes as Texas just posted by far the highest levels of population growth of any state through mid-2020. Could oversupply be an issue?

-Chicago has been a market that has lagged the rest of the US in almost every relevant metric over the last 10 years: income growth, population growth, home price growth, etc. 

-Over half of this list is comprised of state capitals. Raleigh, Richmond, Harrisburg, Baton Rouge, Columbia, Jackson, Oklahoma City, and Des Moines. Could be coincidence...or maybe not?

-Low appreciation might not be the worst thing in the world. It could mean values in these markets are more stable through a downturn. Some of the cities are the ones that performed the best during the real estate crash from 2007-12. 

What are your thoughts? Are you invested or looking to invest in any of these markets? 

 It's interesting to see Richmond on the list. I wouldn't believe it if someone told me that. Our market has gone up up up over the last few years. We do have pockets that are not appreciating, but gentrification is gradually pushing into those areas.

[Julie Thorngren]

My team and I just recently put together a Market Report for St. Louis, MO. Let me know if you may be interested in checking it out!

[Dennis Wayne]

I invest for cash flow so for me I literally don’t care if the houses ever appreciate.

[Zachary Beach]

@Kenton LeVay there is less supply than needed most markets. interest rates down meaning the same payments go further and the money supply was increased from 12 to 16 trillion meaning a lot of inflation. Cash is worth a lot less 10-30% less than this time last year. Both the markets I’m in went up over 20% this year and it’s not a housing bubble it’s inflation and demand increases.

[Mark Brown]

@Nick Gerli I think appreciation has a lot to do with building regulations. Places that put up all sorts of barries, regulations, and fees for building new homes tend to have faster home price appreciation because supply can’t keep up with demand. Assuming it’s a place where people want to live.

[Kyle McCorkel]

@Nick Gerli

Thanks for sharing, this is interesting indeed.

A few points/questions:

To clarify, is this the bottom 15 (sorted by appreciation) out of the top 100 largest metros by population? If so, important to note this leaves out a lot of smaller metro areas.

Also, as you mentioned, low appreciation is not completely bad. For instance, *relative* appreciation should be considered. For example, my local market (Harrisburg*) is on that list of the bottom 15 but our historical rate of appreciation is more like 2%. So a 5% appreciation for us is CRAZINESS ;)

By the way, Harrisburg is the worst place in the world to invest and you should all stay away. Nothing to see here ;) After all, it’s in the bottom 15 of this list!

[Dan Rowley]

@Nick Gerli

Based on other charts I have seen that represent similar data sets, I would call into question some of these #s. I'm really not sure if it's because it's just reliant on zillow data (I.E. not a comprehensive data set) or if there's something else going on, but I would take these stats with a grain of salt...

[Amos Mainville]

@Nick Gerli

Elmira NY 1.6% appreciation is the average annual.

I'm OK with it. I invest heavily there. A duplex runs around 80k turnkey or light renovation. Cashflows well.

But appreciation definitely is not the play there

[Nathan Zierer]

Originally posted by @Julie Thorngren:

My team and I just recently put together a Market Report for St. Louis, MO. Let me know if you may be interested in checking it out!

It would be great to see this?  Did you do it as a metro area or did you break out the metrics for zip codes, towns or some other smaller break down?  

[Carlos Ptriawan]

OMG This data is garbage. You don't look at the past, you look at the future projection. All these TX house has appreciation in Zillow home index.

This is like saying STL has no appreciation in 2018 but 2019 it's the highest appreciating market.

[Enrico Angella]

Thanks for sharing the info, I found it very interesting!

I wouldn’t trust Zillow too much, because it might be based on listing data and not actual transaction prices.

I am currently looking at San Antonio for multi-family deals, so a different kind of investment. However, as for SFR, prices seem to have increased a lot in the last 6 months in SA.

[Carlos Ptriawan]

San Antonio price per unit is $90k with rent per unit of $1k, best in TX

Regarding Zillow, it's accurate, the way people reading here is not accurate, you shall see it from chart/trend perspective not from a defined number.

[Elliot Landes]

@Nick Gerli

I find it strange to see ONLY positive appreciation on the “worst” list. Surely there are some cities that moved negatively, right?

Unless we’re going to put appreciating vs depreciating in two different categories, but I don’t think that’s a very fair stance to take because we’re talking about the same thing, a change in value. Either way, all of these went UP in ONE YEAR. So what’s the worry?

[Nick Gerli]

Originally posted by @Doug Spence:

@Nick Gerli Great post! Very interesting statistics and I like your thought provoking questions. I invest in one of those markets (OKC), and I think its important to take into account the sub-markets within these areas. For example, many areas within OKC don't see much appreciation year over year, but the gentrifying parts have seen significant appreciation in the last year or so! My takeaway: just because a metro as a whole is experiencing below-average appreciation, doesn't mean every property in that area has below-average appreciation! 

Thanks for the feedback Douglas!

OKC is a very interesting market to me. Based on my fundamental analysis it ranks very highly (affordable, growing, not much new supply). It's one that I expect to turn the corner on a market-wide level in coming years.

I hear your point on specific location, though. What areas of OKC do you like the most?

[Nick Gerli]

Originally posted by @Kyle McCorkel:

@Nick Gerli

Thanks for sharing, this is interesting indeed.

A few points/questions:

To clarify, is this the bottom 15 (sorted by appreciation) out of the top 100 largest metros by population? If so, important to note this leaves out a lot of smaller metro areas.

Also, as you mentioned, low appreciation is not completely bad. For instance, *relative* appreciation should be considered. For example, my local market (Harrisburg*) is on that list of the bottom 15 but our historical rate of appreciation is more like 2%. So a 5% appreciation for us is CRAZINESS ;)

By the way, Harrisburg is the worst place in the world to invest and you should all stay away. Nothing to see here ;) After all, it’s in the bottom 15 of this list!

Kyle - thank you for the insightful comment!

I think you hit the nail on the head with "relative appreciation". Extremely high rates of growth isn't necessarily good for a market - it can be destabilizing, and often lead to a crash. I would trust a place like Harrisburg to deliver incremental growth and sustain it's value in the long run over some other "hotter" markets.  

[Nick Gerli]

Originally posted by @Kenton LeVay:

I find it hard to believe that the US Avg appreciation for one year is near 10%.

I believe the metros in this list are 1-6%, but I can't believe the top 85...

Some things to consider:

• - Is this just SFH? or are there Multi-family? The chart doesn't specify
• - Does "Home Value" mean sale price or Zestimate? Because those can be wildly different
• - To the point above, if this is based off sale price it would include flips which I would argue artificially increase appreciation at the metro-level (especially in the short term)

All great questions Kenton! One by one:

-This data tracks SFH + Condos. Excludes multifamily.

-It's based on Zillow's estimate for metro-level home value between the 40th-60th percentile in the market. The best way to think of it would be as "median".

-You bring up a good point about flips. I would have to do more digging to understand how Zillow would or would not adjust for that. 

[Nick Gerli]

Originally posted by @Chris Martin:

I had a Blink moment. So, check your data sources. I don't see the Raleigh market as one of the worst in the US, but for any dataset, you can usually munge the query to make whatever narrative you want. Source: St. Louis Fed reserve, home of some the best data... and free.

You will note that San Jose is not in the cellar dweller list, but has underperformed the other three (including Raleigh, a market I am familiar with) according to the Case Schiller datasets. 

Chris - why do you not trust the Zillow data?

Wouldn't the organization with instantaneous data on listings, listing prices, DOM, price cuts, price increases, views, and broker contacts for over 80 million homes have the best value projection models?

[Doug Spence]

Originally posted by @Nick Gerli:

Originally posted by @Doug Spence:

@Nick Gerli Great post! Very interesting statistics and I like your thought provoking questions. I invest in one of those markets (OKC), and I think its important to take into account the sub-markets within these areas. For example, many areas within OKC don't see much appreciation year over year, but the gentrifying parts have seen significant appreciation in the last year or so! My takeaway: just because a metro as a whole is experiencing below-average appreciation, doesn't mean every property in that area has below-average appreciation! 

Thanks for the feedback Douglas!

OKC is a very interesting market to me. Based on my fundamental analysis it ranks very highly (affordable, growing, not much new supply). It's one that I expect to turn the corner on a market-wide level in coming years.

I hear your point on specific location, though. What areas of OKC do you like the most?

I'm currently focusing on the NW side of town. Some parts of the NW side have already fully gentrified, but other pockets still have a ways to go, so I'm focusing on these areas that are on the upswing. I'm also looking into other parts of town that have homes that aren't as old as many are on the NW side, but still offer solid cash flow. The older age of homes on the NW side is definitely a downside, but I just account for it in my rehab estimates and I account for 10% repairs/maintenance when doing my BRRRR analysis.